For a seller with a continuously available inventory, it is certainly desirable if the seller could always dispose of the inventory at the highest price possible. However, it is not a trivial task to find a buyer or buyers willing to pay the highest prices. Ideally, the seller could hold public auctions as often as possible to sell every piece of its assets to the highest bidder. However, frequent auctions impose a significant overhead cost that tends to reduce, if not eliminate, the seller's profit margin. Alternatively, the seller can identify no more than a handful of buyers, and maintain a long-term and somewhat exclusive relationship with them. That is, the seller may choose to sell most, if not all, of its inventory to these buyers for years to come. Sales prices to these buyers may be determined through negotiations and/or biddings. Since such negotiations or biddings are too expensive to be held on a frequent basis, the sales prices are typically fixed (e.g., in a sales contract) for months or even years without any adjustment. Before a sales contract expires, the seller is legally bound to accept the sales price specified in the contract no matter how the market changes. The effect of a sales contract on the seller is therefore twofold. On the one hand, the seller is protected against risk of losses if the market price plummets. On the other hand, the seller also gives up the potential of additional profits should the market price soar through the roof. Sometimes, a sales contract that under-performs the market may put a seller company in a disadvantaged position against its competitors. For example, due to an unfortunate timing of contract negotiation (e.g., in a low-demand period), a company may later find itself locked into a sales contract with a price that is substantially below the competitors' prices. The company may then face a dilemma of either breaching the contract and incur a penalty or swallowing the pains of watching the competitors growing strong. Although, for a few standard or widely-traded commodities (e.g., oil, electricity, pork-bellies, or orange juice), it may be possible to contract a floating price that is tied to a market index, no reliable reference of market price exists for most assets or merchandise.
A buyer faces a similar problem as well. A buyer can either negotiate an acceptable purchase price with potential sellers, or select, through a bidding process, a seller who offers the lowest price. Since frequent negotiations or biddings are impracticable for a buyer with continuing acquisition needs, the buyer is also likely to enter into one or more agreements that lock in the purchase prices for a relatively long time. As a result, the buyer may also become isolated from the market and cannot benefit from any price drop during the term of the contract.
Take the sale of consumer debts for an example. A typical credit company may have thousands or even millions of cardholders, many of which maintain a revolving balance (i.e., a debt) on their credit accounts. While these debts are a major source of income for the credit company, they also pose a substantial risk as it is inevitable that some of the cardholders lack the ability to repay their debts and will eventually file for bankruptcy (e.g., Chapter 7 or Chapter 13 bankruptcy). As a result, a typical card issuer may find itself in possession of a constant supply of bankruptcy accounts (or bad debts) which have to be disposed of on a regular basis. Typically, the credit company sells the bankruptcy accounts to consumer debt buyers for a fraction of the accounts' face value. Just like other sellers with a continuously available inventory, it is common practice for such a credit company to select a buyer through a bidding process and then enter into an annual (or even longer-term) contract with the buyer. During the contract term, the buyer will continue purchasing the credit company's entire portfolio of bankruptcy accounts at a fixed price as specified in the contract. The pricing of the bankruptcy accounts, though only pennies on a dollar, can be profoundly sensitive to various factors. As such, the market price of the bankruptcy accounts tends to fluctuate substantially within a year, although there is no reliable pricing index to implement a floating price. When a credit company sells a large volume of bankruptcy accounts on a year-round basis, even a small change in the actual sales price can substantially affect the credit company's recovery from the bad debts. Therefore, compared to annual sales contracts, the credit company may prefer a sales process that affords more exposure to the market and/or more control in pricing.
In view of the foregoing, it would be desirable to provide an asset sales solution which overcomes the above-described deficiencies and shortcomings.